Thursday, October 17, 2013

Avoiding Misappropriation in your Purchasing System

In the last few years, a couple of cases of theft of very large sums of money from employers has surfaced. Most recently are the cases of two employees, one who used credit cards for unapproved, non-work-related purposes and the other who defrauded $600,000 to $900,000 in funds respectively. The latter person was the Chief executive officer of a Union and apparently received a salary of $500,000 per annum.

In the first case, yet to be proven, the offender is said to have used a corporate credit card for prostitution, accommodation, food, beverages and car hire etc that was not part of his duties. The other person has pleaded guilty to fraud that involved paying his wife's business for services never rendered. (His wife may well be a principal offender if she knew of the offences).

For those of us who are honest, one wonders how anyone could steal money from any employer, let alone a Union that represents many low paid occupations. And if you earn $500,000 per annum, you shouldn't really need a top-up.

What astonishes me most of all is that there wasn't a purchasing system in place that revealed these discrepancies much earlier.

When a corporate credit card is issued to an employee, there must be strict rules about what can and can't be purchased with it and how it is to be reconciled at the end of the month. If the person who holds the credit card doesn't have delegation to approve expenditure, then there should be a purchase order raised and approved by a delegate before the expense is incurred.

In the case of fraudulent purchase orders and payments, it's astonishing that up to $900,000 could be paid to a business for services that were never rendered. What were those services? Why didn't anyone notice that they hadn't been provided? Was there a quotation for services on file, an approved purchase order, a remittance advice, and evidence that the services had been provided? Apparently not.

This type of fraud and embezzlement can be eliminated or at least detected early with a properly organised purchasing system. That system should require at least three separate people as part of the process and forbid anyone purchasing anything for their benefit using their own delegation. At the end of the year, an independent financial audit should be carried out to ensure discrepancies don't get left unnoticed for years.

How good is your employer's purchasing system? 


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